Tesla is still a pass, says Roth Capital

Roth Capital Partners analyst Craig Irwin issued a report on Tesla (Tesla Stock Quote, Charts, News, Analysts, Financials NASDAQ:TSLA) on Thursday and reiterated a “Neutral” rating on the stock. After second quarter earnings from the electric vehicle company, Irwin’s assessment is that competition in the EV space is intensifying and Tesla’s market share will deteriorate.

Tesla reported its Q2 2023 financials, with revenue climbing 47 per cent year-over-year to $24,927 million and adjusted EBITDA up 23 per cent to $2,703 million. EPS was up 20 per cent to $0.91 per share and free cash flow registered at $1,005 million compared to $621 million a year earlier.

“Q2-2023 was a record quarter on many levels with our best-ever production and deliveries and revenue approaching $25 billion in a single quarter. We are excited that we were able to achieve such results given the macroeconomic environment we are currently in,” Tesla said in a statement.

The company claimed its Model Y was the world’s best-selling vehicle over the first quarter, while its cybertruck factory in Texas remains on track to begin production later this year. On the company outlook, management said it continues to expect 2023 to register a CAGR of over 50 per cent and expects 1.8 million vehicles will be produced this year in total.

“While we continue to execute on innovations to reduce the cost of manufacturing and operations, over time, we expect our hardware-related profits to be accompanied by an acceleration of AI, software and fleet-based profits,” Tesla said.

On the Q2 numbers, Irwin said the $24.9 billion in revenue was under his forecast at $25.8 billion but better than the consensus call at $24.5 billion. EPS at $0.91 per share was above both the Roth forecast at $0.85 and the Street at $0.82 per share.

On non-GAAP auto gross margins, Irwin noted they were at 17.5 per cent, which compared to 18.3 per cent and 26.2 per cent in the first quarter 2023 and the second quarter 2022, respectively.

Irwin noted Tesla’s further erosion of margins as the company reduces its average selling price, which hit $46,000 versus $47,000 in Q1 2023 and $56,000 in Q2 2022. 

Reduced ASPs, coupled with ramp costs for Cybertruck, AI-related tech, Berlin/Austin builds and 4680 production, all weighed on TSLA’s margin profile, where non-GAAP auto gross margin percentage of 17.5 per cent is the lowest since 2Q19. While Cybertruck, facility ramp headwinds, and [4680 battery]-related costs are expected to taper, management noted it now plans to accelerate Dojo/AI-investment,” Irwin wrote.

Irwin maintained a one-year target on TSLA of $85.00, which at press time reflected a projected return of negative 71 per cent.

“Our Neutral rating deviates from the ROTH standard rating system, and we believe the Neutral rating appropriately balances how Tesla is positioned to continue executing, but the shares are valued at an oversize premium to all peers in the automotive sector, in our view,” he said.